The first point to be aware of is that the rules around nomination are very different in each Australian State / Territory.  The discussion below relates to the State of Victoria. Please don’t assume that what works in one state will work in another. This can lead to expensive stamp duty consequences.

In terms of consequences, we often talk of ‘double stamp duty‘.  To be clear, this means that if you get the nomination wrong on a $500,000 purchase you may face paying stamp duty of $25,070 twice. (Please note that stamp duty amounts will vary depending on concessions and surcharges.)  The point of this article is to explain some common scenarios where this can arise.

The Right to Nominate

Before we begin, a few thoughts on nomination itself.

Nomination is the term that describes the process of a purchaser under a signed contract of sale nominating another party to stand in their shoes as purchaser.  This may be because:

  • one party couldn’t attend the auction and we want to nominate into joint names; or
  • perhaps your accountant recommends that the purchase proceed in the name of a trust or other structure.

In Victoria, we don’t need the nominee to be a related party or that the structure has been created before the contract is signed.  But that’s the limit of the good news from a stamp duty perspective!

If you may want to nominate – please ensure that there are not any special conditions in the contract that limit your right to nominate BEFORE you sign the contract.  Key issues include imposing fees on nomination, limiting the time frame for nomination and removing the right to nominate. The latter is very common with off the plan style contracts.  We also recommend that you add ‘and / or nominee’ after the name of the purchaser in every case.

You should also be aware that after nomination, the original purchaser has the obligations of a guarantor.  If the nominee doesn’t settle both the nominee and the original purchaser will be on the hook for potential damages.

Nomination at a Profit

If you nominate at a profit you will be liable for double duty. Once on the original contract and a second time on the nomination.  Hence if you purchase the property for $500,000 and nominate at a $50,000 profit then stamp duty of $25,070.00 and a further $28.070 on the nomination will be incurred.

You can nominate at a higher price – where the increase reflects reasonable estate agent, legal and similar fees.  In simple terms, there is no profit here so no double stamp duty.

Parallel Arrangements

This can arise where you nominate in the context of another agreement.  The most common example is a builder signs the original land contract and then nominates (with no mark up / profit) the land contract to a home buyer who signs a separate building contract with the builder.

However, this can also be triggered by nominations done pursuant to joint venture agreements or development agreements.

Again, the consequence of getting caught is double stamp duty.

Land Development

If you nominate after land development occurs you may face double stamp duty.

Land development is defined in the Duties Act to include not only renovations and repairs to a property – but also preparing a plan of subdivision (or even getting advice in relation to a plan of subdivision) and applying for plans and permits.

It is easy to make this mistake.  For example, assume your contract allows you to start applying for plans and permtis before settlement – and you start this process.  Your accountant then suggests a different structure to buy the property – or maybe the introduction of an investor creates the need for change.  If you then nominate in favour of the new entity you will face a claim from the State Revenue Office for double stamp duty.

At Lewis O’Brien & Associates, we encourage you to get advice before you sign a contract.  Talk to us about your plans before you nominate so that we can make sure that you don’t walk into one of these traps.

Electronic systems mean that the State Revenue Office asks more questions, collects more information and does more cross-checking.  Hoping that the State Revenue Office won’t notice is really not a viable strategy.

Nomination is but one tricky and changing subject that is relevant to the purchase of property.  Getting the right advice up front could save you tens of thousands of dollars.

If you have an upcoming purchase you can review the contract with Lewis O’Brien, get your questions answered and Lewis will suggest special conditions to tailor the contract to your needs – click here!

Lewis O’Brien